Court backs Dotcom's right to sue spy agency

An appeal court on Thursday backed Megaupload boss Kim Dotcom's right to sue New Zealand's foreign intelligence agency for illegally spying on him as part of a US probe into alleged online piracy.

The Court of Appeal refused a government request to overturn a High Court decision in December that said he can seek damages from the Government Communications Security Bureau (GCSB) over his treatment.

The ruling also means the GCSB will have to disclose to Dotcom's defence some details of information-sharing arrangements it had with foreign agencies, including US authorities, before the Internet tycoon's arrest in January 2012.

It emerged last September that the GCSB spied on Dotcom before armed police raided his Auckland mansion, even though he is a New Zealand resident and should have been off-limits to the agency.

Following the revelation, which prompted an apology from Prime Minister John Key, Dotcom applied to include the GCSB in a lawsuit he is planning against New Zealand police alleging wrongful arrest.

Dotcom's lawyers have not detailed how much compensation they want but opposition political parties said the amount could be substantial.

US authorities allege Dotcom's Megaupload and related file-sharing sites netted more than US$175 million and cost copyright owners more than US$500 million by offering pirated copies of movies, TV shows and other content.

Dotcom, a German national who changed his name from Kim Schmitz, faces an extradition hearing in August.